Tessera Technologies (TSRA) jumped sharply on better than expected guidance for its third quarter. The firm expects revenue to be $66.5 million-$69 million (up 12%-16% year-over-year), above the consensus estimate calling for $60 million. Tessera owns several patents it licenses to semiconductor makers, and it expects the revenue from this segment to be $53 million-$54 million, roughly even with the previous quarter. Its Digital Optics segment, which focuses on camera technology, however, will likely register $13.5 million-$15 million in revenue during the third quarter—nearly double the amount it produced in its second quarter.
Tessera holds valuable intellectual property with respect to semiconductor packaging and thermal management technology that helps cool electronics. However, given the ‘expense-light’ nature of this business, we were surprised to see that operating expenses for the third quarter could be as high $71 million on a GAAP basis. Still, while the company burned through $14 million and $39 million in cash during 2011 and 2010, respectively, those figures have improved during the first and second quarters of this year. We suspect the firm is investing heavily to diversify away from its IP business, which likely won’t last forever.
Given the rapid technological change within the industry in which it operates, we aren’t huge fans of the firm over the long run. But with no debt, $475 million in cash (about $9 per share), and valuable intellectual property, Tessera trades for just slightly above book value (about $13 per share). Even as its cash-burn slows, it’s unclear to us what the future holds for the firm. Still, with such valuation parameters, we think it’s worth adding to the watch list. The firm plans to announce third-quarter results November 1.